Wiley CPAexcel Exam Review 2014 Focus Notes: Auditing and Attestation

Focus on: Audit Sampling—Module 7

SAMPLING

Sampling is used in both tests of controls and substantive testing.

• Nonstatistical samples are based exclusively on auditor’s judgment
• Statistical samples involve mathematics and probabilities

Sampling Risk

Audit risk is affected by sampling risk.

• Sample for performance of tests may not be representative of population
• Conclusions drawn may not be same as if sample was representative

Sampling Risk and Tests of Control

When sample not representative in a test of control, 2 possible errors

Risk of Assessing Risk Too High (Underreliance)—Auditor will conclude that control is not effective when it actually is

• Auditor will inappropriately assess level of control risk at maximum and perform more substantive testing than necessary
• Resulting audit will be inefficient

Risk of Assessing Risk Too Low (Overreliance)—Auditor will conclude that control is effective when it actually is not

• Auditor will inappropriately assess level of control risk below the maximum and perform less substantive testing than necessary
• Resulting audit may be ineffective and auditor may issue inappropriate report

Sampling errors in tests of controls

TRUE OPERATING EFFECTIVENESS OF THE CONTROLS

The test of controls sample indicates:	Adequate for planned assessed level of control risk	Inadequate for planned assessed level of control risk
Extent of operating effectiveness is adequate	Correct Decision	Incorrect Decision (risk of assessing control risk too low)